Gold hits $1,585 on Irish, US woes

 

A goldsmith stands behind gold bracelets on display at his shop in Riyadh October 12, 2009. (Reuters)
JEDDAH: Gold prices surged to just above $1,585 an ounce on Wednesday, a record as investors switched to the metal for safety from the euro zone debt crisis.
According to a Reuters report, spot gold rose 1.3 percent to $1,585.10 an ounce as of 10:52 a.m. EDT (1452 GMT). US August futures gained $23.70 at $1,586 an ounce.
Spot silver was last up 5.7 percent at $38.10 an ounce, bringing the gold/silver ratio — the number of ounces of silver needed to buy one ounce of gold — to under 42 from 43.46 on Tuesday.
Gold has gained around 12 percent so far this year and more than doubled in price in the last four years.
Faisal Alsayrafi, a financial adviser, said people have started shifting their investments gradually to gold from the capital market and real estate market because gold is considered a safe long-term investment. “The price of gold has been on the upward trend since the beginning of this year because of the huge demand created by investors,” he said.
“The rally is certainly due to Moody's downgrade of Ireland to junk status as well as concerns about the state of the US economy, concerns about further quantitative easing which could cause the dollar to fall further. Gold is regarded by many investors as a hedge against devaluing currencies. Hence, gold should appreciate if the fundamentals look challenging going forward,” John Sfakianakis, chief economist at Banque Saudi Fransi, said.
Jarmo T. Kotilaine, chief economist at the National Commercial Bank, said: “The persistent pressure on gold prices highlights the growing lack of confidence in economic policy around the world and especially in the West. The situation in very reminiscent of the stagflationary crisis in the 1970s, an era when endemic deficits and inflation fueled gold to its previous high in 1980. In real terms, prices back then were in fact far ahead of the current levels. With no near-term sign of a return to sustainability in the policies of the US and the euro zone, as well as exceptional risks by historical standards, many investors see fewer and fewer alternatives to gold as a hedge and a store of value.”
From the Saudi perspective, Kotilaine said, these trends highlight the persistence of a very uncertain and risky backdrop of the global economic and policy environment, adding this would test investor confidence here as well. Saudi investors face an added challenge in the relative lack of gold-based or related investment vehicles, he said. Most investors are still typically forced to turn to physical gold and jewelry with concomitant storage costs and risks, he added, claiming that in the West exchange-traded funds and other vehicles have created attractive liquid and cost-efficient alternatives.
However, he said, in spite of the cultural affinity to gold, such products are still relatively rare in the Gulf.
The World Gold Council said in its recent report that gold prices rose in local currency terms in many developing countries, which tend to play an important role in the gold market. Gold rallied to record highs in sterling, euros and the South African rand as well as dollars on Wednesday.